Britain Launches New Pandemic Loan Support Scheme

Britain’s finance minister Rishi Sunak on Wednesday launched a new state-backed loan scheme for businesses hit by the COVID-19 pandemic, replacing existing programmes that have seen struggling businesses borrow some 73 billion pounds so far.

The new scheme will offer loans from 25,000 to 10 million pounds, with an 80% state guarantee, replacing the previous ‘bounce back’ scheme aimed at small businesses and programmes for larger firms.

Sunak did not give details on the interest rates or eligibility criteria for the new scheme, with media reports ahead of his Budget plan suggesting they are likely to be more stringent.

Sunak is trying to reduce companies’ reliance on the previous state-backed lending schemes as Britain prepares to ease lockdown restrictions which should lead to an economic recovery.

More than 45 billion pounds had been borrowed by over 1.4 million companies under the so-called Bounce Back Loan Scheme for smaller businesses, which allows banks to lend up to 50,000 pounds with 100% state backing.

The country’s leading spending watchdog last October warned more than half of that money may never be repaid due to fraud and defaults, given the limited checks banks were required to do.

A further 27 billion pounds has been loaned via two schemes for medium and large-sized companies, with 80% of the lender’s exposure backed by the state.

The lending support has helped defer or even prevent bankruptcy for many companies in hard-hit sectors such as retail and travel, meaning Britain’s banks have yet to see much impact on their loan books from the pandemic.

But the support has sparked concerns that the loans are propping up ‘zombie’ companies that will collapse as soon as the life support plug is pulled.

– Reuters